Vinod Mittal vs Rays Power Experts Pvt. Ltd. & Anr

[Arising out of Order dated 26.07.2019 passed by National Company Law Tribunal, Chandigarh Bench, Chandigarh in CP (IB) No.169/Chd/Hry/2018]

IN THE MATTER OF: Before NCLT Before NCLAT

Vinod Mittal Appellant The Palm Spring, (Shareholder/Director D-1502, Sector 54, of Corporate Debtor) Golf Course Road, Gurugram - 122001, Haryana

Versus

1. Rays Power Experts Operational Creditor Respondent No.1 Private Limited Through Managing Director, 4th Floor, Sheel Mohar Plaza, Yudhisthir Marg, C-scheme, Jaipur - 302001

2. Siwana Solar Power Corporate Debtor Respondent No.2 Project Pvt. Ltd. Through Mr. Mukesh Kumar, Interim Resolution Professional, Having his office at 436, 3rd Floor, Sector - 7, HUDA, Near Tau Devilal Park Panipat, Haryana - 132103 2

For Appellant: Shri Raju Ramachandran, Sr. Advocate, Shri Arun Kathpalia, Sr. Advocate with Shri T. Sundar Ramanathan and Ms. Kumudavalli, Advocates

For Respondents: Shri Pulkit Deora, Advocate (Resolution Professional) and Shri Kamal Kant Chhabra, Advocate

Shri Pawan Sharma, Shri Arpit Yadav and Shri Krishna Dutta, Advocate (Respondent No.1)

JUDGEMENT

(18th November, 2019) A.I.S. Cheema, J. :

1. Respondent No.1 - Rays Power Experts Private Limited

(Operational Creditor) filed CP (IB) No.169/Chd/Hry/2018 under Section

9 of the Insolvency and Bankruptcy Code, 2016 (IBC - in short) against

Respondent No.2 - Siwana Solar Power Project Pvt. Ltd. (Corporate Debtor)

before the Adjudicating Authority (National Company Law Tribunal,

Chandigarh Bench, Chandigarh). The Application came to be admitted on

26th July, 2019. Hence, the present appeal by shareholder/Director of

suspended Board of Corporate Debtor.

2. The Operational Creditor claimed that the Corporate Debtor had

awarded the work order for supply, commissioning and service of Solar

Power Project for its commercial exploitation. The parties entered into an

"Engineering Procurement and Construction (EPC) Agreement" (EPC

Agreement - in short) dated 1st May, 2014 for execution of the project.

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Operational Creditor received part of the amount due for invoices raised

for part payment and was in default. Notice under Section 8 was issued

on 8th March, 2018 (Page - 233) and was served by speed post on the

Corporate Debtor on 13th March, 2018. Operational Creditor claimed

before the Adjudicating Authority that the Corporate Debtor gave no Reply

to the Demand Notice and also claimed that there was no dispute of unpaid

operational debt raised by the Corporate Debtor. The Operational Creditor

claimed debt of Rs.2,82,48,963/- along with interest to be in default.

3. Impugned Order shows that the Adjudicating Authority directed

Operational Creditor on 09.07.2018 to put on record documents to

reconcile the amount of the invoices enclosed with the petition with the

amount of the invoices shown in the demand notice. The Operational

Creditor placed on record Completion Certificate with financial statements

of Operational Creditor for the purpose and claimed that there was no

mismatch of the amount. The Adjudicating Authority by Order dated 26th

October, 2018 issued Notice of the Petition (Application) to the Corporate

Debtor. Subsequently, Rahul Gupta, Authorized Representative of the

Operational Creditor filed Compliance Affidavit dated 29th December, 2018

to show service of Notice on the Corporate Debtor on address mentioned

as per master data and that Notice was also sent by e-mail address as

reflected in the master data of the Corporate Debtor. The Adjudicating

Authority proceeded ex-parte against the Corporate Debtor and held that

the Notice under Section 8 was served on the Corporate Debtor but not

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responded to, and that no pre-existing dispute had been shown and it

proceeded to admit the Section 9 Application and initiated Corporate

Insolvency Resolution Process (CIRP - in short). The Interim Resolution

Professional (IRP - in short) was appointed and further consequential

directions were also given.

4. Against such Impugned Order dated 26.07.2019, present Appeal

has been filed by the Appellant - Shareholder/Director of the Corporate

Debtor. The Appeal states and it has been argued for the Appellant, taking

up cause of the Corporate Debtor that the Operational Creditor had

incorrectly and by misrepresentation claimed before the Adjudicating

Authority that there was no dispute between the parties. The learned Sr.

Counsel on behalf of the Appellant pointed out that there are numerous

documents available with the parties which show that there were serious

disputes with regard to the installation and commissioning of the project

as well as operation and maintenance. The Counsel referred to the EPC

Agreement (Annexure 3 -Page 101) to state that there was Agreement with

the Operational Creditor for erection, procurement and

installation/commissioning of the project as well as to operate and

maintain the project for 25 years. It is argued that although the Corporate

Debtor issued Completion Certificate, there is voluminous record showing

faulty erection of the project and various other defects in the execution of

installation as well as defects relating to installation and functioning of the

project which was not giving the targeted output. There were frequent

Company Appeal (AT) (Ins) No.851 of 2019 5

breakdowns and disputes had arisen between the parties which is evident

from so many e-mails exchanged between the parties.

5. Learned Counsel for the Appellant referred to Annexure 44 (Page

- 485) where the Adjudicating Authority directed the Operational Creditor

to disclose correspondence with regard to the document at Page - 183 of

the Paper Book as was placed before the Adjudicating Authority. The

learned Counsel stated that the page referred by the Adjudicating

Authority is at Page - 431 of the present Appeal and submitted that this

document itself showed that the Corporate Debtor had on 20th October,

2016 conveyed to the Operational Creditor that although the Corporate

Debtor appreciated the fast work done to complete by the deadline of 31st

December, 2014 but later on it had found that there were other pending

works including bad quality of work done by the Operational Creditor to

complete the project, which were pending and were to be completed by 31st

December, 2014. The e-mail gave details in this regard. Learned Sr.

Counsel for the Appellant submitted that when such document was

already before the Adjudicating Authority, it was apparent that there was

prior existing dispute and the Application should have been rejected. The

learned Sr. Counsel also referred to Order dated 9th July, 2018 of the

Adjudicating Authority (copy of the which is at Annexure - 46) which reads

as under:-

"Learned counsel for petitioner seeks time to place on record completion certificate and also to submit further clarification regarding the amount of

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sundry creditors shown by the respondent in Balance Sheet. The above affidavit with documents to be filed by the petitioner shall also state whether there is any other correspondence between the parties relating to the completion of the project apart from the documents annexed with the petition and also to reconcile the amount of the invoices enclosed with the petition with the amount of the invoices shown in the demand notice.

List the matter on 31.07.2018 for arguments."

[Emphasis supplied]

It is argued that in response to such query by the Adjudicating

Authority, Shri Rahul Gupta, the Authorized Representative of the

Operational Creditor filed Affidavit (copy of which has been pointed out at

Page - 494) and the learned Sr. Counsel submitted that although all the

correspondence was available with both the parties, Mr. Rahul Gupta in

para - 4 of the Affidavit claimed that the burden of proving the dispute was

on the Corporate Debtor and that since relations of the parties were

strained, Operational Creditor could not call upon the Corporate Debtor to

furnish details. It is pointed out that although such statement was made

in the Affidavit by Mr. Rahul Gupta, same Mr. Rahul Gupta even after

filing of the Section 9 proceedings had on 15th June, 2018 sent e-mail

(Annexure 45 - Page 486) referring to the discussions between the parties

and the breakdown of the plant and, inter alia, sought meeting for

discussion and closure of accounts. The learned Sr. Counsel submitted

that although such e-mail was being sent on the e-mail address of the

Corporate Debtor (balajiimports@yahoo.com), the Operational Creditor did

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not disclose pendency of such Application under Section 9 since 11th May,

2018. It is further argued that in para - 5 of the Affidavit dated 25th July,

2018 filed in compliance of the Order dated 9th July, 2018, the Authorized

Representative of the Operational Creditor had unequivocally mentioned

in para - 5 as under:-

"5. The deponent submits that with respect to further/additional correspondence, if, any, between the parties relating to the completion of the project, it is stated that presently no further communication is retrievable specially on account of grievances, if, any towards the commissioning of the project. However, as a bona fide conduct the Operational Creditor had already annexed readily available communications exchanged between the parties with the application on the subject. It is further stated that since the completion certificate has been issued with due satisfaction and even 84.21% of the payment towards completion of the plant had already been made by the Corporation Debtor to the Operational Creditors. The particulars of which are detailed at page no.21 of the application, the raising of discontent by the Corporate Debtor against the commissioning of project is purely an afterthought and a spurious plea. In order to substantiate the view of the operational creditor put on reliance the Apex Court Judgement in the matter of Mobilox Innovations Private Ltd. Vs. Kirusa Software Private Ltd. relevant Para being 19 & 37. Copy of the said judgement is annexed herewith and is marked as ANNEXURE A-3."

[Emphasis supplied]

It is argued that hiding behind words like "presently not

retrievable", the Operational Creditor suppressed the correspondence

showing pre-existing dispute, which was available in computers.

Company Appeal (AT) (Ins) No.851 of 2019 8

6. It is argued by the learned Sr. Counsel for the Appellant that the

e-mail (Annexure - 15 Page - 152 at 153) shows that on 16th March, 2015

itself, the Corporate Debtor had conveyed to Rahul Gupta and others that

the Operational Creditor had failed to fulfil its commitments and there was

very poor work done at the site and that the main cause is not grid issue

but the issue was everywhere and that the Operational Creditor was

running away from its responsibilities. Such e-mail was sent on 16th

March, 2015 at 1.34 PM and the Operational Creditor sent Reply at 8.36

PM (Page - 152). It was mentioned in the e-mail:-

"We are trying to complete all open issues at the plant. In order to ensure that all quality issues are closed I am personally visiting the site every 4-5 days and we have closed a lot of matters also.

It is unfortunate when you say you made a mistake by betting on us, I feel highly unfortunate. I don't understand what such thing happened which made you feel so. Its just the delay in handing over the plant to you. There are several reasons for this, most of those happened on our account and we take the responsibility for the same. For example we have changed a lot of structures and our teams are working on it. At no point we have run from the plant or are giving an excuse of not doing work on the plant. In the below mail we are pointing out the loss we are again and again facing because of grid fail and fluctuations. An inverter burnout is a clear example for this."

Thus, the learned Sr. Counsel submitted that apparently and

clearly, there were pre-existing disputes pending with regard to the

structures which were put up and failure of grids and there were other

issues also, which were admitted by the Operational Creditor. The learned

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Sr. Counsel referred to list of dates and events tendered at Bar with various

page numbers from the file to show that there is host of correspondence

showing various disputes and in spite of the same, the Operational

Creditor supressed the same from Adjudicating Authority and even when

specifically asked, the Affidavit filed was intentionally vague with the only

object of getting CIRP initiated.

7. It is argued by the learned Sr. Counsel for the Appellant that

Section 8 Notice was not sent to the registered Office of the Corporate

Debtor but was sent to another address as mentioned in the Demand

Notice. The Notice was sent to e-mail address of then Director of Corporate

Debtor. The Appeal claims that partnership firm - Haryana Paper Card

Industries in which the then Director of Corporate Debtor was partner,

was dissolved on 31.03.2018 and the assets of said firm went to continuing

partner - Mr. Dushyant Kumar Tyagi. The other three partners retired

from the firm and the premise - Plot No.109, Sector 27/28, Hissar,

Haryana, was still shown in the record of ROC as registered Office of

Corporate Debtor which was asset of the said firm which stood transferred

to Dushyant Tyagi. The Appeal claims that relationship between Mr.

Jagdish Parshad Singal and Mr. Tyagi strained. It is claimed that the

Notice under Section 8 was served on e-mail of then Director. The

Operational Creditor did not serve the Petition and Paper Book on said e-

mail address. It is mentioned that the Operational Creditor served papers

Company Appeal (AT) (Ins) No.851 of 2019 10

on the registered address of the Corporate Debtor but the same was no

longer being used under the control of Corporate Debtor.

8. Against the claims made by the Appellant, the learned Counsel for

Operational Creditor referred to invoices raised (as at Page - 331and 332

of the Appeal) and argued that the installation project has been completed.

The learned Counsel referred to the Completion Certificate issued by

Operational Creditor (Page 501) and submitted that on 19th April, 2015,

the Certificate of Appreciation was issued by the Corporate Debtor.

Argument is that within the time frame as per the Agreement, the

installation of the project had been completed and the promoters and

management of Corporate Debtor had appreciated the services rendered

by the Operational Creditor for timely completion of the project. The

argument is that the Agreement dated 1st May, 2014 has two parts. For

supply and installation of machinery, Article 5.1 prescribed the price and

for operation and maintenance for 25 years, the price was specified in

Article 5.2. The learned Counsel for Operational Creditor argued that it

showed that the supply and installation were complete and the amounts

on that count were due and the Section 9 Application was filed for those

amounts only and not for operation and maintenance of the project. Thus,

according to the learned Counsel, the correspondence referred to by the

Appellant was not relevant as Completion Certificate had been issued and

regarding the completion, there was no dispute.

Company Appeal (AT) (Ins) No.851 of 2019 11

9. The learned Counsel for the Operational Creditor referred to Page

- 446 of the Appeal to say that Section 8 Notice was sent by registered post

and track report showed service and that the Appellant has accepted that

the Notice was served on the then Directors in their e-mail address. The

Operational Creditor referred to Page - 57 of Volume - 1. Regarding service

of the Notice of Section 9 proceeding, the Operational Creditor is

submitting that the Petition was served on the registered office of the

Corporate Debtor, which was allegedly no longer being used by the

Corporate Debtor. It is argued that e-mail of the Notice of Adjudicating

Authority was sent and that the Appellant had not denied existence of said

e-mail ID.

10. In Rejoinder, the learned Sr. Counsel for the Appellant argued that

the Agreement was inseparable and the erection and installation of the

project was linked with the operation and maintenance by the same

Operational Creditor and the correspondence itself shows that there were

structural problems as is apparent from (Annexure - 15) e-mail dated 16th

March, 2015 (referred supra).

11. Having gone through the matter and on considering record, there

remains hardly any doubt that the earlier correspondence shows that

between the parties there were disputes regarding installation of the

project as well as functioning of the same. Although the project had been

commissioned for which Completion Certificate had been issued, still if

disputes had arisen between the parties regarding the installation and

Company Appeal (AT) (Ins) No.851 of 2019 12

functioning of the project, the Operational Creditor merely pointed out

Certificate of Appreciation dated 19th April, 2015 issued and claims that

once Completion Certificate had been issued, Corporate Debtor could not

raise issues with regard to the quality of the work done. In fact, the record

shows that there had been even a review meeting between Operational

Creditor and Corporate Debtor and excerpts of which minutes have been

placed on record by the Corporate Debtor at Page - 187 which showed that

full installation was yet to be completed (see Page - 188). There was also

discussion regarding Sag Structure Correction Action Plan. In fact, there

is Annexure - 24 showing the Experts enquiry on 5th May, 2015 as to when

the plant would be declared fully commissioned so that they could start

electrical review of the project. Looking to such material on record, it is

quite clear that there was pre-existing dispute regarding installation as

well as operation of the project. When this is so, the Section 9 Application

could not have been admitted. In fact, when e-mail dated 20th October,

2016 (Page - 431) was already before the Adjudicating Authority and it had

also noticed the same, the Adjudicating Authority should have found pre-

existing dispute and the Section 9 Application should have been rejected.

Only by observing that the Respondent - Corporate Debtor have not come

forward to dispute the Application would not be sufficient to initiate CIRP,

if the record already showed existence of dispute.

12. We do not intend to deliberate on the grievances raised by the

Appellant that Section 8 Notice or Notice of Section 9 Application was

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served in a manner that Corporate Debtor does not come to know about

Notice and pending proceeding considering the Appeal pleading as put up

by Appellant, especially, para numbered as 'ggg'.

13. However, considering the voluminous records showing pre-

existing disputes between the parties, we do find fault with the Affidavit

filed by the Authorized Representative of the Operational Creditor as at

Page - 495 of which para - 5 we have reproduced earlier. Although the

Adjudicating Authority had specifically asked for the correspondence, it

can be seen that the Authorized Representative - Mr. Rahul Gupta

resorting to articulate wordings avoided placing on record the

correspondence claiming that "presently the communication is not

retrievable". Starting of CIRP against a functional company is a serious

matter and parties cannot be allowed to play hide and seek. We propose

to impose heavy costs on Operational Creditor as well as Mr. Rahul Gupta.

14. For above reasons, we set aside the Impugned Order dated

26.07.2019. The initiation of Corporate Insolvency Resolution Process

against the Corporate Debtor is quashed and set aside. Steps taken in

consequence of Impugned Order and further Orders passed during CIRP

are all quashed and set aside.

15. We release the 'Corporate Debtor' from rigour of 'Corporate

Insolvency Resolution Process'. The 'Interim Resolution

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Professional'/Resolution Professional will handover the assets and records

to the 'Corporate Debtor'/ 'Promoter'/Board of Directors.

16. We impose costs of Rs.5 Lakhs on Operational Creditor. We

impose costs of Rs.2,50,000/- on Mr. Rahul Gupta - son of Rajendra

Prasad Gupta - the Director of Operational Creditor which he shall pay

from his personal account to the Corporate Debtor. The Corporate Debtor

will be at liberty to execute and recover these costs or it may adjust the

same from payments, if any, it has to make to the Corporate Debtor.

[Justice A.I.S. Cheema] Member (Judicial)

[Kanthi Narahari] Member (Technical)

[V.P. Singh] Member (Technical) /rs/md

Company Appeal (AT) (Ins) No.851 of 2019